SPRINGFIELD, Mass. -- In February 2004, Claire O'Connell showed up at
a meeting of the board of MassMutual Financial
Group, seeking to deliver an unwelcome message: She suspected her husband,
the giant insurer's chief executive, Robert J. O'Connell, was having an
affair with the company's top female executive, Susan Alfano.

Ms. O'Connell was intercepted by another board
member and never made it into the meeting room. But people familiar with the
situation said that her startling action led to internal investigations and
revelation of matters more serious than office romance. An investigator hired
by the board discovered that Mr. O'Connell's supplemental retirement account
had ballooned suspiciously to more than $30 million. The person overseeing
the account was none other than his alleged paramour.

In June, the investigator's
findings led MassMutual's board to vote unanimously
to fire Mr. O'Connell. In addition to the most serious accusation of padding
his retirement account by tens of millions of dollars, the board alleged that
he improperly bought a Florida
condominium from the company at a discount price and misused corporate
aircraft. The board wasn't aware that under Mr. O'Connell, MassMutual loosened its anti-nepotism rules and hired
several members of his family, according to the company.

The scandal is shaping up as a
corporate tragicomedy: allegations of financial shenanigans by a headstrong
CEO mixed with a strange dispute over golf-course etiquette -- and more. Mr.
O'Connell's activities are now under criminal investigation by Massachusetts
Attorney General Tom Reilly.

Rocked by all this is MassMutual, a 154-year-old company that employs 27,000
people and has $350 billion in assets under management. Beyond its large
insurance operations, the company controls money-management firms OppenheimerFunds Inc. and Babson
Capital Management LLC, as well as Baring Asset Management Ltd. in Britain.
As a mutual insurer, the Springfield, Mass.-based company is owned by its
policyholders.

Company and state investigators
are still trying to piece together what went wrong at MassMutual
and how it remained undetected for years. Among the questions: What did Ms. Alfano know about Mr. O'Connell's allegedly improper
activities?

There isn't any dispute that
she signed off on many of the CEO's trades in what is known as a shadow
retirement account. Similar in purpose to a standard 401(k) plan, this kind
of account allows an executive to trade hypothetical assets which may gain or
lose value on paper over time, based on the return of real investments. No
taxes are due until the executive's retirement, at which time the company
pays out an amount equal to the value of the account.

Mr. O'Connell, who is 62 years
old, and Ms. Alfano, 51, have denied that they did
anything wrong and that they were romantically involved. A report by the
board's investigator didn't conclude that there was an affair.

Mr. O'Connell has told
reporters that the MassMutual board treated him
unfairly and has said that he will be vindicated in private arbitration
proceedings he has initiated. His attorney, Dean Richlin,
added that the findings of the board's investigator were in large part
factually erroneous and "terribly biased." Mr. O'Connell was open
with the board about his retirement-account activities and hasn't received a
penny from the account, Mr. Richlin said.

No Disagreement

There is no disagreement that
one board member, perhaps inadvertently, approved of at least some of Mr.
O'Connell's disputed activity in the retirement account. The board has
accused Mr. O'Connell of inflating the value of his account with implausible
hypothetical gains on initial public offerings of stock.

Ms. Alfano
was asked to leave her executive vice president's job the same day in June
that the board gave Mr. O'Connell his termination notice. Her spokesman,
Peter Mancusi, confirmed that she signed off on Mr.
O'Connell's hypothetical retirement-account trades from early 1999, when he
arrived at the company, through early 2005. But the spokesman said his client
didn't know the amounts in the phantom account and wasn't aware of any
manipulation.

Ms. Alfano's
lawyer, Jody Newman, said that her client was asked to leave because of Mr.
O'Connell's departure and took early retirement.

Robert and Claire O'Connell
jointly filed for divorce in July 2004, citing "an irretrievable
breakdown of the marriage."

In the late 1990s, MassMutual was a risk-averse company still digesting a
1996 merger with Connecticut Mutual Life Insurance Co. Its directors saw Mr.
O'Connell as someone who could administer a "shot of adrenaline"
and spur innovation, according to a person familiar with the MassMutual board. At the time, Mr. O'Connell was president
of domestic life insurance at American International Group Inc. and an
acolyte of AIG's famously aggressive then-chief
executive, Maurice R. "Hank" Greenberg.

In his new job, Mr. O'Connell
cut a complicated profile. A native of a blue-collar neighborhood in New York's Bronx borough, he often alluded to an early
stage in his career when he taught economic history at FairfieldUniversity in Fairfield, Conn.,
according to a former MassMutual executive. To
explain his strategic vision, he assigned reading to fellow board members and
top executives, including the book "Napoleon's Glance: The Secret of
Strategy."

The company performed well
under his leadership. From 1999 through December 2004, revenue grew by 50%,
and MassMutual's statutory surplus, the equivalent
of shareholders' equity as calculated by state regulators, increased by
nearly 62%. The company enjoys top ratings from credit agencies.

Ms. Alfano
had started at MassMutual in a clerical position in
human resources in 1971. By the time Mr. O'Connell took over, she was head of
human resources and oversaw executive benefits and pay. Her duties soon grew
to include communications, transportation and building maintenance.

Not long after Mr. O'Connell
arrived, the company relaxed its nepotism policy, which was overseen by Ms. Alfano's department. MassMutual
had previously forbidden the hiring of relatives of executive officers or
directors. But in 2002, the company hired Ms. Alfano's
son, along with Mr. O'Connell's son, his daughter, and his daughter's
husband.

In its termination notice, the
board accused Mr. O'Connell of interfering with a company investigation and
reprimand of his son and son-in-law for the improper exchange of confidential
information about securities. The son, Jared O'Connell, wouldn't speak to a
reporter seeking comment. The son-in-law, J. Rexford Hampton, didn't return
messages.

Mr. O'Connell has denied
interfering with the internal investigation. A person close to him said that
the O'Connell family hires went through normal procedures and that the ex-CEO
didn't directly oversee any of the family employees. Both
his daughter, Kristin Hampton, and son-in-law still work at MassMutual. Mr. O'Connell's son left in July 2004.

Ms. Alfano's
spokesman, Mr. Mancusi, said his client wasn't
"responsible for the decision to change the nepotism policy. Her son was
hired several years later through the normal interview and selection
process." The son, Greg Secor, is still
employed by MassMutual.

Retirement Benefit

Ms. Alfano's
department also oversaw Mr. O'Connell's shadow retirement account. This
benefit was established by the board when Mr. O'Connell joined the company to
compensate him for potential remuneration he lost when he left AIG. MassMutual initially credited the account with about $4.1
million.

Though little known outside of
lofty corporate ranks, shadow accounts have become relatively common in
recent years as a supplement to more conventional retirement benefits.
Hypothetical trading in most shadow plans is restricted to a small number of
mutual funds.

Mr. O'Connell was initially
restricted to trading in 15 mutual funds. There is no dispute that not long
after his hiring, the board relaxed the rules to allow him to trade in 15
blue-chip stocks, as well. To shift hypothetical assets around in his
account, Mr. O'Connell would instruct a subordinate to record the switch on
an internal form, which generally would be signed by Ms. Alfano,
according to people familiar with both the board's and Mr. O'Connell's positions.

Two other MassMutual
executives hired away from AIG also had shadow accounts, but they were
allowed to invest only in mutual funds, according to people familiar with the
situation.

In September 2000, according to people close to Mr.
O'Connell and the board, the head of the board's human-resources committee,
John F. Maypole, signed off on any past hypothetical trades that the CEO had
made, including at least two involving initial public offerings of stock.

A person close to the board
said that Mr. Maypole never looked at the list of hypothetical transactions
he was approving, which this person said may or may not have been provided to
him at the time. Mr. Maypole assumed the securities in question were all
blue-chip stocks, this person said. Mr. Maypole is managing partner of a
real-estate company in Toccoa, Ga.

Mr. Richlin,
the O'Connell lawyer, said: "The board clearly knew about the activity
in this account. Anything they claim they didn't know was readily
knowable."

Mr. O'Connell enjoyed his
biggest paper gains -- a total of about $18 million -- by hypothetically
buying stock in hot IPOs, sometimes allocating
himself batches of shares far larger than would normally be available even to
sophisticated individual investors, according to people familiar with the
board.

For example, when CoSine Communications Inc. went public in
September 2000, investor appetite for the optical-networking firm was so
strong that its underwriters twice raised the target price for the IPO. Mr.
O'Connell allocated himself more than 59,000 phantom CoSine
shares at the IPO price of $23, according to people familiar with the matter.
The IPO involved 10 million shares in all. In a deal of that size, one
individual receiving 59,000 shares would be unusual.

On its first trading day, CoSine closed at $63.06 (before a subsequent one for 10
reverse stock split). CoSine
shares fell soon after that, but within about two months, Mr. O'Connell
liquidated his phantom CoSine holdings, netting a
paper gain of more than $1 million, according to people familiar with the
matter.

Among other hot IPOs in which Mr. O'Connell traded were JetBlue Airways Corp., Lexent
Inc. and Global Power Equipment Group Inc., according to a person
familiar with the matter.

A person close to Mr. O'Connell
said that he could make phantom trades only once per month, so that there was
always some risk that the account would lose value during that time -- and in
fact that the ex-CEO did lose value on at least one hypothetical IPO
transaction.

Overall, Mr. O'Connell enjoyed
an outstanding 37% average annual return over the 6½ years he was with the
company. During that period, the Dow Jones Industrial Average returned an
average of about 4.5% a year including dividend reinvestments. He turned his
$4.1 million initial credit into $30.6 million, as of March 31, 2005,
according to the report prepared by the board's investigator. The same amount
invested in the DJIA would have grown to about $5.5 million over that period.

The board concluded that Mr.
O'Connell sometimes executed phantom trades early in the morning at the
previous day's closing price, according to people who have reviewed the
report of the board's investigator. This could allow him to take advantage of
anticipated share-price increases caused by intervening earnings
announcements or other events, according to the people familiar with the
investigator's report.

A person close to Mr. O'Connell
said that he followed the rules. In spring 2004, the company prohibited
shadow trading in Mr. O'Connell's account based on the previous day's closing
price, among other changes.

Florida Confrontation

The beginning of Mr.
O'Connell's unraveling at MassMutual came in
February 2004, when his then-estranged wife, Claire, arrived at the site of a
board meeting in Marco Island, Fla. Roger G. Ackerman, a MassMutual
director and the former chief executive of Corning Inc., intercepted
her outside the meeting. This account was confirmed by a spokesman for the
board.

Ms. O'Connell told Mr. Ackerman
that she suspected her husband of having an affair with Ms. Alfano and that she wanted to give this information to
the board. Mr. Ackerman listened but declined to admit her to the meeting,
the spokesman confirmed. The board member later confronted Mr. O'Connell, who
denied any romantic entanglement.

The O'Connells,
who married in 1966, separated in August 2003, court
documents show. Gerald Nissenbaum, hired in spring
2004 as Ms. O'Connell's divorce attorney, said his client didn't try to get
her then-spouse fired: "It's not in her economic interests to see him
fired, and she would not have taken steps to get him fired." Ms.
O'Connell didn't return phone messages seeking comment.

After the scene in MarcoIsland,
the board retained the large New
York law firm Skadden, Arps, Slate, Meagher & Flom
LLP to investigate Ms. O'Connell's allegation about office romance. Skadden found no proof of an affair, but it did raise
questions about nepotism and possible improper use of company aircraft for
family and friends.

People familiar with the
situation said that at least several board members were upset by aspects of
the Skadden findings and raised questions about how
forthcoming the CEO had been.

High Marks

In December 2004, the board's
annual performance review of Mr. O'Connell gave him high marks for corporate
performance, but comments were included from individual directors who
criticized him on the nepotism and aircraft issues, among others.

"I thought he was doing a
lousy job communicating" about these matters, James Birle,
a board member who is now chairman, said. "I sat down and had a
heart-to-heart with Bob."

Although Mr. O'Connell had
forbidden senior executives from directly communicating with board members,
several began privately expressing concern to directors about Mr. O'Connell's
management style and his relationship with Ms. Alfano,
according to people familiar with the board.

In February 2005, the board's
governance committee ordered up a second inquiry. It hired Ray Maria, a
forensic investigator from northern Virginia who is a former Federal Bureau
of Investigation agent and acting inspector general of the Department of
Labor. Looking into the relationship between Mr. O'Connell and Ms. Alfano, the investigator found issues both serious and
absurd.

On one occasion in 2003, he reported
to the board, Mr. O'Connell supposedly berated the president of MassMutual's real-estate unit. The CEO complained that
Ms. Alfano had been "harassed" by an
official at a golf club owned by MassMutual in Florida for her slow
play, according to people familiar with Mr. Maria's report to the board. The
real-estate president, David J. Reilly, said Mr. O'Connell threatened to
close the course to members if the incident was repeated, according to the
person familiar with the report.

A person close to Mr. O'Connell
said that the report contained conflicting information on this topic, but he
declined to elaborate.

While interviewing employees,
Mr. Maria heard about a manager who had left the company with a big
separation package after asking questions about Mr. O'Connell's retirement
account, according to people familiar with the Maria report. The former
manager, Daniel Raymond, had once administered the company's benefits
program. Several years ago, according to the person familiar with the Maria
report, Mr. Raymond raised concerns within the company about trading in Mr.
O'Connell's shadow account based on the previous day's closing prices. At one
point, Mr. Raymond spoke to Mr. O'Connell directly, and Mr. O'Connell thanked
him for bringing it to his attention, the person said.

In April 2004, Mr. Raymond left
the company after three years of employment with a $500,000 separation
agreement. The board said in its June 2 termination notice to Mr. O'Connell
that it was firing him in part for "causing payment of unwarranted and
excessive separation payments to be made to company personnel in connection
with personally motivated and retaliatory terminations of employment."
The board didn't name Mr. Raymond or any other employees.

A person close to Mr. O'Connell
said that the company-approved separation payment had nothing to do with Mr.
O'Connell. In tension with the board's accusation, the Maria report includes
information indicating that the size of the payment wasn't unusual, according
to people familiar with the matter.

Mr. Raymond became an
independent agent for MassMutual insurance in the Springfield area. The
company received word earlier this year that Mr. O'Connell was trying to buy
a $5 million life-insurance policy from him, according to people familiar
with the matter. The initial commission Mr. Raymond would have earned from
the deal was about $245,000, these people said.

A person close to Mr. O'Connell
said: "No policy was ever written. No papers were completed." Mr.
Raymond declined to comment.

When Mr. Maria interviewed Mr.
O'Connell about his shadow retirement account, the CEO told the investigator
that he wasn't a sophisticated investor and was surprised at how good his
stock picks had been, according to a person familiar with the Maria report. A
person close to Mr. O'Connell declined to comment on the purported
conversation.

On the morning of June 2, the
board convened a meeting near Hartford,
Conn. A subdued Mr. O'Connell
sat facing Mr. Ackerman, who chaired the meeting. Mr. O'Connell defended his
stewardship of the company but didn't address the various allegations against
him, according to two people who attended the meeting. He spoke for less than
half of his allotted 30 minutes.

When he left the room, some
board members expressed anger that he didn't respond to the allegations,
these two people said. Board members debated how much to offer him to resign
quietly, in hopes of avoiding a legal fight.

In the end, Mr. O'Connell was
given a choice: leave voluntarily with benefits valued at roughly $7 million,
including the initial $4.1 million credit in the shadow account, or face
termination with no money. Mr. O'Connell, who claimed he stood to receive $60
million under his contract, including the more than $30 million in his shadow
account, chose to fight the board in arbitration.